The EU needs clarity on how UK banking rules will change before it can deem them “equivalent” to those in the bloc, its top banking regulator told the Irish Independent.
We do have to engage with the UK and we want to engage with the UK,” José Manuel Campa, chair of the European Banking Authority said in an interview. “It’s a very important partner.”
A week after the EU and UK finished talks on a memorandum of understanding (MoU) for financial services, there is still no hint of a coveted equivalence determination.
The decision would not grant UK banks a passport to sell across the bloc like they had before Brexit, although equivalence can sometimes improve market access.
The decisions are temporary and can be cancelled at any time, as the EU showed in 2019 when it withdrew recognition for the Swiss stock exchange in a row with Bern over wider diplomatic ties.
The European Commission has said it is in no rush to grant the UK equivalence, partly because it is still unclear about which way the regulatory wind is blowing post-Brexit.
“The key component, here, of this equivalence decision is the way forward,” Mr Campa said.
“What I would like to get is assurances that, although some divergence may occur over the medium and long-term, the expectation is that those divergences will not be substantial and will be manageable.
“That’s the part that is going to be difficult for the Commission to assess, obviously, because it’s logical that both the UK and the EU may not know exactly what the future looks like. We know we are likely to diverge, but we cannot be too pre-committed about which way we are going.”
Before the EU-UK trade deal took effect on January 1, the bloc had granted two limited equivalence decisions to UK securities depositories and clearing services.
But the EU is determined to reduce its dependence on the City of London and boost prospects of onshore centres such as Amsterdam, Paris, Frankfurt and Dublin.
Mr Campa said the MoU is “the key component for any kind of engagement” with the UK and that it was “very good news” it was signed by the end of March deadline.
“It shows that the spirit of cooperation is there and that is good. And it’s undoubted that we will have deep relations with the UK in the financial sector for many years.”
Euronext Amsterdam overtook London in January as Europe’s biggest trading venue as stock market business fled the UK after the ‘big bang’ of Brexit. Euronext’s exchanges in Paris and Dublin also benefited after EU financial institutions were barred from trading in London post-Brexit.
It was the first tangible sign of how Britain’s full departure from the European Union would impact the City of London as the follow-up EU-UK trade deal does not cover finance.
The City has almost closed the share trading gap with Amsterdam since dealings in Swiss shares resumed in the UK capital following Brexit, data shows.
The Commission had stopped EU investors from trading on Swiss exchanges in June 2019 after a dispute.
(Additional reporting, Reuters)